Monday, September 28, 2009

Welfare for the Wealthy, Arizona Style

If you want to 1) take money from public services to pay for your own child's private school tuition, and 2) receive a dollar for dollar tax credit for the money you save for your own child's private education (beginning at conception), then move to Arizona. Here is just the beginning of Part 1 of an amazing piece of journalism from the East Valley Tribune (ht to Nick Burbules) about an amazing scam that right-wingers would love to take nationwide:

Only God and the health of loved ones rank higher with Beth and Doug Fitch than an elite education for their two boys.

The $20,000-a-year cost is exorbitant, Beth said, even though the Fitches are both personal injury attorneys and own an Ahwatukee Foothills home valued at a half-million dollars, Maricopa County property records show. But the Fitches haven't had to worry about the bill.

The state's Private School Tuition Tax Credits program covers the cost of private education, often for children whose parents could afford to pay it themselves - while allowing affluent families to reduce the amount of income tax they pay into the state's general fund.

To date, Arizona's main bank account has lost $350 million to private schools. The price tag is growing as the state grapples with the most serious financial crisis in its history, and people who depend on the general fund - public school children, the disabled, the poor and the sick - face severe cuts in services.

Under the program, taxpayers give money to nonprofit charities called school tuition organizations, or STOs for short. STOs give scholarships to children for private school tuition, and the state provides donors a dollar-for-dollar tax credit in exchange for their contribution.

The tax credit law, signed by Gov. Fife Symington in 1997, is touted as a tool to make private education more accessible to families who could not otherwise afford it.

Instead, it has fostered a rigged system that keeps private education a privilege for the already privileged.

The Tribune reviewed thousands of pages of state and federal tax records and analyzed private school enrollment data from the past 12 years.

Reporters interviewed dozens of parents, school administrators, school tuition organization executives, tax experts and government officials.

The newspaper's reporting provides the most complete account to date of whether tax credits have torn down the economic barriers that block underprivileged children from private classrooms, as lawmakers promised.

The Tribune investigation found:

* An untold number of STOs, schools and parents are using the tax credits in ways that violate federal tax laws governing charitable donations.

* Nearly two-thirds of all STOs failed to spend 90 percent of their donations on scholarships - as required by state law - since 2003, the year the STOs began filing annual reports with the state Department of Revenue.

* Executives at two of the largest STOs have used tax credit donations to enrich themselves, buying luxury cars, real estate and funding their own outside for-profit businesses.

* A majority of tax credit donations are earmarked to give scholarships to students already enrolled in private schools, no matter how much money their parents earn. Just seven of the state's 55 STOs use financial need as the primary factor in deciding who gets tuition money.

* Even as they took in millions of dollars in scholarships, the state's private schools hiked tuition dramatically, pushing the cost of private education further from the grasp of middle- and low-income families.

* Tax credits have failed to increase minority students' access to Arizona's private schools. Students at the schools receiving the most scholarship money remained overwhelmingly white at a time when the state's Hispanic population boomed.

Lawmakers promised tax credits would make private education available to all Arizona families.

"Even the poorest child now becomes royalty in the system," Trent Franks, author of the private school tax credit law and now a U.S. congressman, wrote in a 1999 column in the Tribune. "In the past, only wealthy parents could afford their children such an opportunity."

His rhetoric never became reality.

Private schools grew slightly during the tax credit era, though there is little evidence the subsidies took significant numbers of students out of public schools and off the taxpayer rolls. Statewide, roughly 6,900 more students are educated in private classrooms than in 1996, compared with more than 280,000 additional students who entered public schools.

By design, Arizona's tuition tax credit program is unregulated. No state agency has the authority to prevent or penalize even the most brazen misconduct.

For instance, the state law specifically bars parents from donating to an STO and claiming a tax credit to pay their own child's tuition.

Yet schools and parents violate this prohibition with impunity, the Tribune has learned through numerous interviews with those who use tax credits.

Some schools give parents step-by-step instructions on how to game the system by lining up other donors for their child. One private kindergarten even pairs up parents to exchange tax credit donations - an illegal quid-pro-quo transaction under federal tax law.